A person holds keys to a new car
Vehicles

When’s the best time to replace my car?

A quick and easy guide to understanding how and why cars depreciate in value and when to pick the best time to trade in your car for a newer model.

By Shell on Feb. 15, 2022

Dreaming about a new car but wondering when the most economical time to upgrade is? There's no simple answer because every different car has a different trade-up 'sweet spot'. But there is one key factor swirling at the centre of it all: depreciation. Knowing how this impacts your car is essential if you want to make a well-informed decision for your budget.

What is depreciation?

When we think about what we spend on our car we tend to think of fuel, servicing and insurance, but the biggest single cost is actually depreciation.

The minute you drive a new car away, its value typically drops anywhere up to 15 per cent. A year on, it might have lost up to another 15 per cent. Three years down the track, it might be worth just 60 per cent of its new price.

That's a lot of cash going up in smoke. But the good news is the depreciation curve shallows out appreciably after that initially steep hit and the average annual depreciation hit shrinks over a longer ownership period. If you want to minimise what you spend on depreciation, hanging onto a car beyond that initial three-year period is the way to do it.

Figuring out your car's resale value

Different cars are subject to different depreciation curves but finding the current resale value of yours is easy. Just go to the website of an automotive data provider such as Redbook or Glass's Guide and search your car.

This will typically bring you to a page with a host of useful data, including its current private-sale and trade-in values, which are listed as price ranges rather than specific numbers. If you want more specific numbers taking your car's condition, kilometres and other details into account, you can pay a small fee for a personalised valuation report.

Should I keep it or should I sell?

Beyond being able to minimise your exposure to depreciation, knowing your car's resale can help you make an informed decision about the financial implications of keeping it or moving it on.

If your car is older and in need of high-cost repairs to keep it going, you might be at risk of spending more on repairs than the value of the car itself.

If your car is financed, you'll be able to determine whether you'll still owe money after moving the car on or if the sale will settle the debt.

If your car is paid off, past its warranty and capped-price servicing periods and starting to soak up a little extra money on upkeep, you'll be better placed to calculate whether the same premium could finance something newer.

Knowing the difference between trade-in and private-sale values can also help you land on the best sale method for your particular finances or circumstances and maximise your return.

The COVID exception

In the here and now, you can pretty much ignore everything you've read because the COVID pandemic has turned the car market – and resale values – upside down.

Constrained by computer chip, labour and other shortages, carmakers have been reducing new-car production, meaning new cars haven't been easy to get. That untapped demand, along with many Australians choosing to eschew public transport for the socially distant convenience of a used car, has soaked up the used market's usually abundant supply.

With demand for cars now exceeding supply, traditional depreciation curves have been flipped. Values of used cars have risen across the board and some near-new models are actually now selling for more than their new price.

When will things return to normal? When the pandemic settles and supply-chain constraints ease, which isn't quite on the horizon yet.

Disclaimer

Viva Energy Australia Pty Ltd (“Viva Energy”) has compiled the above article for your general information and to use as a general reference. Whilst all reasonable care has been taken by Viva Energy in compiling this article, Viva Energy does not warrant or represent that the information in the article is free from errors or omissions or is suitable for your intended use.